December 21, 2010
Amid news of mergers and acquisitions come two similar stories today: Brown-Forman and Constellations Brands are both looking to sell all or part of their wine business. Just type "wine glut" into Google and you'll get plenty of stories from markets around the world. So think about that for a minute: how do you get the best price for an asset - sell when there is big demand, or sell when there is a glut? You know the answer, of course. Any 10-year-old knows that when everyone is looking to sell, the price will not be high. Any ten-year-old, that is, except the ones that run some big public companies.
Those corporate chieftains are experienced stewards of the shareholders' assets. Or at least that's what they pitch to their Boards of Directors when it comes time for a compensation review. And some of them are quite sophisticated, at least according to the US Court of Federal Claims. So why do managements seem to take the same view and the same actions so frequently? It may be that there is a correct view of a given market and savvy managements zero in on that view. Or it may be that corporate gladiators with detachment from their shareholders take short-term actions with an eye on quarterly earnings reports instead of the long-term benefit of the holders. Most likely, examples of each are played out every day. That alone is enough reason to be wary of companies (in mature industries) that do not pay cash dividends to shareholders.
But when the lemmings are all rushing to sell an asset, chances are it's time to buy.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).